This is from an FT email this morning:
Why has this happened? Three reasons.
The UK thinks financial engineering is more important than actual engineering, so we gave up trying to make things.
Financial engineering is primarily designed to benefit the already well-off by making them believe they are even better off. The promotion of inequality by refusing to tax the wealthy properly reinforces that impression.
Politicians have gone along with this because growth is recorded, and they are unable to distinguish between reality and a statistic.
Who has paid the price? Almost certainly, you have.
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“Who has paid the price? …you have.”
2010 – working with large Japanese corp. We had a complex elec eng project with a UK network operator and needed an elec engineer. I interviewed various candidates. One – graduated in the late 1980s. We remarked to him on the shortage of elec engineers. “I was the only one to become an engineer after graduating – all the others went into finance”. We eventually found a good elec eng – from New Zealand!
Unless you practise elec eng shortly after graduating it is almost impossible to get back into it. The consequence can be seen now, where foreign engineers are common in e.g. the network operators. Or: leading Uni – I knew the elec eng dept well: “Mike we have funding for a doc in elec eng – do you know any BRITISH people with elec eng degrees that might be interested”…. me – no.
The finance sector (it ain’t an industry) is a parasite/leech on the UK state – it claims to produce lots of benefits – claims. Its influence on the Uk state is illustrated by the rembrancer that sits close to the speaker in the HoC – rembarance represents “the interests” of the (sh)city of London. If the (sh)city of London were 1/10th of its current size – it would still be too big. A malign influence for at least 2 centuries. I do not see things changing short of a revolution.
Much to agree with
As someone who did graduate in engineering and entered into the engineering sector, I agree with Mike that many engineering graduates are going into finance (or management consulting)). Certainly in my day the financial incentives were huge.
To the broader point about financial engineering and taxing the wealthy (particularly wealth extractors). An article by Tim White in the Guardian “ Across Europe, the financial sector has pushed up house prices. It’s a political timebomb” caught my eye.
Heavily summarised it highlights the large-scale ownership and control of homes by financial institutions motivated solely by profit / shareholder returns has massively increased since the 2008 global financial crisis. In essence, their ownership / control of housing enables them to extract huge profits whilst ensuring a sufficient shortage of supply to maintain these profits. Simply, people do not have security over a basic human need of a roof over their head…or have to pay a huge portion of their income to do so.
In short, another example of neoliberal policies failing the vast majority. Or, as Tim White summarised “ We’ve been living in a great experiment: can finance provide basic human rights such as housing? The answer is increasingly no”. Why can our government not waken-up and realise this, what part of the spend then tax equation do they not get?
Of course, the mathematical skills used in engineering (of various sorts) and nowadays the programming/IT skills, are equally useful in the financial ‘services’ ‘industry’. Even 50 years ago, I recall some of the dozen or so engineers at my college saying they were going into something ‘financial’ (or property, investment or the like). Some perhaps had family or ‘old school’ connections – so why they read engineering at all, I don’t know. I did it because I wanted to design and make and create things – and see them brought into existence. Admittedly, looking back, a lot of them weren’t truly ‘useful’ and some were definitely ‘harmful’ – environmentally, even if of short-term human benefit – but I’ve changed my focus in more recent years.
I think some of this was identified by Prince Albert, in the mid 19th century: the British (mainly ‘English’) obsession with class, empire and money, rather than science, technology and ‘trades’ (in the practical sense) which he knew Germany and other European rivals were much better at developing. This despite the immense scientific advances brought by many British researchers. In some sense, we suffered the ‘winner’s curse’ of becoming the greatest empire the world has known: we succeeded in exploiting everyone else’s work, resources and innovation; and failed to develop a self-sustaining creativity.
Thanks
The financial sector produces nothing, and extract large amounts of wealth.
No produce, no growth.
It’s amazing that a so-called Political Economist, allows this sort of nonsense to appear on the site without comment.
It suggests that either Murphy doesn’t understand the value-added by the financial sector or he deliberately lies about it to deceive his readers.
I wonder which it is,
I agree with Adair (Lord) Turner who when reviewing the causes of the global financial crisis described most financial services activity as socially useless. He was right. I consider its net contribution to be negative.
Perhaps you’d care to provide some concrete examples of the value added by the financial sector? It’d be good to know your reasons for claiming that it does add value, rather than, as Ian Tresman points out, simply extracts value (through things like interest payments, fees, rents and so on). You see, I can’t think of a single thing that the financial sector produces. I also can’t see how things like interest payments add value, I’ve certainly never experienced that with any interest I’ve ever paid.
@Richard Varner
“allows this sort of nonsense to appear on the site without comment”
But you just commented…
So there’s at least one thing you said that isn’t true.
You also forgot to explain WHY you claim the FT article was nonsense.
How do I learn, if neoliberal monetarists never explain themselves?
Finance is required in a modern society, so, by definition is does “add value” but IF AND ONLY IF supplied appropriately and in the right “amount”.
The Finance sector allows us to pay and receive money, we can borrow to buy houses, companies can finance their activities by borrowing of selling equity. Governments need to sell bonds and bond buyers need secondary market liquidity. All of these activities “add value” because they make our lives easier and better.
However, do we need derivative products like “CDO squared”? No, most definitely not.
Now, Richard and I might differ on where the boundary is between useful, useless and positively harmful but we both agree that the current system is draining money from the real economy in favour of those that have money…. at the expense of most ordinary folk.
I did, I think, make clear that the disadvantages outweigh the advantages.
The obvious reason was that there are some pluses – and I cannot deny that. We need a functioning banking system, and insurance, and savings mechanisms. We do not need much of the rest. So we are close on the page…
Thank you, Richard.
I have worked in the City for thirty years and wonder what value it adds to society.
The City has provided a good life for many people, including me, but it has also helped to destroy the wider UK.
If you are one of the few beneficiaries of financial services, then you see its benefits through guilt-edged rose-coloured glasses. Then you kid yourself that the negative aspects make it all worthwhile, forgetting:
❌Financial crises such as the 2008 Great Financial Crash
❌Inequality (worse than ever, and not factored into the overall benefits)
❌Short-Termism
❌Misallocation of Capital
❌Complexity and opacity of the actual risks
❌Undue influence on government policy
Am I right that the finance sector was originally – and correctly! – not included in GDP?
Correct
Even now, a fudge has to be included to pretend it adds value
Thank you and well said, Richard.
I have sat in meetings attended by ministers, officials and banksters and heard the following:
“Financial engineering is our (the UK’s) manufacturing.” This was when the development of a British mittelstand and how to fund it was discussed. A banker said that to coalition ministers and implied that the UK does not need manufacturing.
“Bonuses are essential if we want to keep funds flowing to small business.” A bank CEO said that to senior Treasury officials when the EU contemplated restrictions on bonuses.
Belgian Green MEP Philippe Lamberts recognised that talented EU youngsters were going into finance rather than engineering and floated the idea of restrictions on pay, not just bonuses, in finance, so that the playing field could be levelled. I discussed with him, but had to be careful and not talk out of turn. The idea went nowhere.
Worth trying…
Well said Col Smithers. On a related note (& relevant to the otherblog on unversities, education & the ability to think) this piece of imbecility from the Guardian:
https://www.theguardian.com/business/2025/jul/07/trump-federal-reserve-jerome-powell
extract:
“A central bank’s independence is pretty much the only thing macroeconomists know of that’s a free lunch,” said Jason Furman, a former economic adviser to Barack Obama. “When you look at authoritarian leaders that have effectively taken over the central banks, like in Turkey, you can end up with 70% inflation rates and really, really big economic problems.”
Ah yes – Turkey. What about China. Nah can’t mention them that would completely stuff the “central banks must be independent from politicos” argument. The writer is pathetic, this is not journalism – it is cretinism. Personnally, I hope Trump sacks all the bankers in the Fed – they are self-serving parasites & bring no value to anything.
I think the language pushes me a bit far here…
But the nodding donkey acceptance of this idea is absurd..
This might relate to your post in a rather oblique way, but I asked ChatGPT to give me an estimated breakdown of where all the “sleeping” money that adds up to the National Debt actually is. Here’s the answer. I’m no economist, but I can’t help wondering if at least part of the answer is “Use it or lose it”.
Putting It All Together: Approximate Allocation of UK “Debt” (£2.8 trillion)
Pension funds & insurers £650Bn ~23%
UK banks (gilts & reserves) £1,000Bn~36%
Foreign holders(govs, investors)£650Bn~23%
Wealthy households & funds £350Bn~12%
Corporations (cash buffers) £125Bn ~4%
NS&I and other household saving£100Bn~4%
Local authorities / public agencies £50Bn ~2%
Total £2,825Bn 100%
(Note: Figures are approximate and overlap slightly — e.g., some reserves and gilts held via intermediaries)
Better figures are available.
Look at the UK Debt Management Office.
Thanks. And ChatGPT, on reflection, agrees with you too! The fundamentals remain the same though. As far as I can see, decades of policy choices by successive Governments have led us inexorably to the position where the primary goal is private asset protection rather than public purpose.